How to Value Your Home in Bankruptcy

Learn about the acceptable methods for valuing your home in bankruptcy.

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Having an accurate valuation of your home will help you make decisions for the bankruptcy filing process so can protect your home when you file for bankruptcy. Here's how to value your home for bankruptcy purposes.

Determining Whether Your House Will be Protected in Bankruptcy

While all states provide a homestead exemption of some sort, the extent of that protection varies depending on the exemptions that are available to you when you are filing for bankruptcy. In some states, such as Florida and Iowa, the entire homestead, regardless of valuation, is protected in most cases. In other states, such as Alabama and Kentucky, the homestead protection can be as little as $5,000.

If you have an accurate value of your house, you can deduct the mortgage balance and determine the equity. If the equity is less than the amount of the homestead protection available, your house will be protected in bankruptcy. If the equity exceeds the available homestead protection, your house may be at risk in a Chapter 7 bankruptcy, and Chapter 13 may be a better option.

(To learn more, see Your Home in Chapter 13 Bankruptcy and Your Home in Chapter 7 Bankruptcy.)

Methods of Valuing Your Home 

There are several methods you can use to determine the value of your home before you file for bankruptcy. The method you chose will depend on your personal situation. In all circumstances, you will want to know the value of your property as of the date you are filing for bankruptcy.

Full House Appraisal

A full appraisal will give you the most accurate value for your property. If you refinanced your home or modified your loan, you might have a recent appraisal. Depending on the real estate market, an appraisal that is more than two or three months old may not be considered recent.

To get a full appraisal, you hire a licensed real estate appraiser who inspects your property and prepares a lengthy report, containing information on your home and information on sales of comparable homes. Based on that information and any other factors the appraiser finds important, the appraiser will set a value and provide an explanation for the valuation.

A full appraisal is the most expensive option. You probably need to get an appraisal if you plan to try to strip a second mortgage from your property in a Chapter 13 bankruptcy. (See Getting Rid of Second Mortgages in Chapter 13.)

Comparable Market Analysis

This is less expensive than a full appraisal and may provide you with an accurate home valuation for bankruptcy if you are not trying to strip a lien.

Under this option, a licensed realtor will compare your house to other homes sold in your area. A good market analysis will use data from the sales of homes that are very close in location to yours and which are very similar in size, style, and condition. If the amount of equity in your house is close to the limit of the homestead protection available to you, a comparable market analysis can help you determine whether your house would be protected in a Chapter 7 bankruptcy.

Websites With Local Sales and Listing Data

These might be useful if you have a high mortgage amount and you believe that the homestead protection to you will be more than sufficient to protect your property. The information you can obtain may be able to confirm your beliefs or tell you that you need to obtain a more formal valuation.

Valuation Methods Not to Use

There are some valuation methods which are not reliable for bankruptcy purposes and should not be used.

Local Property Tax Appraiser Values

Your locality may have a property tax appraiser that values your property for real estate tax purposes. These valuations are rarely useful in a bankruptcy proceeding. The property tax appraiser will often use methods that are not acceptable appraisal methods for sale purposes and often the value is not an accurate representation of the market value of the home.

Quick Sale Values

This valuation method which generally produces a lower value based on a need to dispose of property quickly is not readily applicable to real estate. A bankruptcy trustee will generally sell a house the same way a home owner would -- by hiring a real estate broker to market the property. As a result, a "quick sale" value is not helpful to you when you are considering bankruptcy.

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